Tag Archives: UTOPIA

Macquarie’s Milestone 2 proposal has been finally released to the public. Here’s a quick run-down of the most important details.

The final cost per address is estimated at $22.60 per month. Macquarie estimates that re-working the deal to account for five cities bowing out trimmed the cost by $8.57 per month.

The revenue split is much more generous than I expected, allowing the cities to keep 75% of wholesale revenue after the first $2M per year. It’s expected to completely cover the debt service by 2021 with just a 24% take rate for premium services.

The basic level service has also been improved. Instead of 3M/3M service being included at no extra cost, it’s been bumped to 5M/5M. This matches Google Fiber speeds on the free tier. The data cap stays put at 20GB per month.

Macquarie will still be in charge of operating the network for opt-out cities.

A public vote will determine if the project moves forward in the opt-in cities.

Cities are free to determine what, if any, opt-out provisions will be available.

Users won’t be charged a utility fee until they connect to the network or six months after the network connection is available, whichever comes first.

UIA and SAA users will not pay any utility fee. If you’re already paying for (or have paid) your network connection, there’s no utility fee for you.

The UTOPIA NOC would be closed and all NOC operations moved to a Fujitsu facility in Texas. Keeping a primary or secondary NOC in Utah would raise the utility fee by between $1.50 and $1.79.

Almost all of the network revenues are being driven by Veracity, XMission, and SumoFiber. Other ISPs are very small by comparison.

The majority of currently connected users are in opt-out cities. This only reinforced that the votes there were “we got ours” selfishness.

Overall, this still looks like a great deal for the cities who are moving forward. It could still be a great deal for cities that haven’t figured out what to do about the network yet (looking at you, Orem).

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In all of the city council discussions over the Macquarie deal, the conversation has been dominated by the potential cost of the utility fee. Even with the extremely high probability of generating enough revenue to cover the utility fee and reduce the bond payment, it’s all about what how much money is going to be collected from the cities. This has sunk the deal in about half of UTOPIA cities and looms as a threat over the ones that opted to get more details under Milestone Two. If Macquarie wants this to pass, they need to quash this main opposition talking point.

My projections are that this Macquarie deal creates a whole lot of money, both for Macquarie and the cities. Macquarie is operating in a very risk averse fashion despite this. They need to put more skin in the game in order to get current UTOPIA cities to take the deal and expand it across the state and the nation like they want. With their size and the low break-even point (35%-ish take rate), that should be easy to do.

Macquarie could alter the deal to eliminate or sharply reduce the direct utility fee. In its place, they should stipulate that they take 100% of the wholesale revenues until what would have been the utility fee is covered, then go back to the revenue split for any money beyond that. This would remove the possibility of cities having to pay anything for the deal and creates a small (and very remote) risk of them taking in less money than what it costs them to operate the network. There would be no way to scaremonger that the cities would be creating a huge tax on residents.

This is still a really good deal for cities. They eliminate all operational and maintenance costs associated with the network. If it doesn’t work, the only money they have to pay is the original bonds that they would have had to pay anyway. If it does work, they lower the bond payments. Either way, the network gets done, they eliminate the operational costs, and they get a completed network back at the end of 30 years.

There’s still downsides to this approach. Macquarie had planned to bond for 80% of the money needed to complete the build. The utility fee ensured that they could secure the best possible rates to do so. Without that kind of security, they would have to find alternate financing options or direct money internally to the project (and away from other projects). It could be harder for Macquarie to pull together the money and it will definitely mean that the revenue split for cities would be much smaller. It also means that Macquarie could end up not meeting their required ROI.

Maybe what Macqaurie could do is offer the cities three options and let each city pick the one that works for them. Option 1 would be the current utility fee with a maximum amount of revenue sharing to the cities. Option 2 would be no utility fee, but the cities have much lower odds of getting any kind of wholesale revenue split. Option 3 would be a lowered utility fee with a lowered share of wholesale revenues going to the cities. This would allow a lot of flexibility in how cities can opt in. It also allows Macquarie to at least partially take advantage of lower interest rates for the cities who take Option 1.

So far, Macquarie hasn’t played the politics of the situation very well at all. Despite a few big successes in the beginning, they’ve gotten their clocks cleaned in most of the cities that voted later and they haven’t been willing to accept that this is a full-scale war, not some alley fight. I’m hoping that they’ve paid attention and are willing to look at ways to keep this a good deal all around while defusing the biggest arguments against taking the deal.

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In a 4-0 vote (one council member was not present), Perry opted to move forward with Macquarie’s Milestone Two proposal for UTOPIA. This brings the final total of addresses participating to just shy of 53%. Each city who opted to get the full proposal will still need to vote to accept it once it’s completed. All UTOPIA pledging cities have had a chance to vote on the proposal before the June 27th deadline to respond.

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Orem voted 6-1 to reject Macquarie’s proposal for the UTOPIA network. Orem represents 18.7% of the total addresses covered by the network. Midvale, West Valley City, Layton, Tremonton, and Brigham City have all voted yes while Payson, Lindon, Centerville, and Murray have voted no. A vote from Perry is expected tonight as well and they are expected to move forward, though the city accounts for slightly less than 1% of passed addresses. The total addresses that will be covered under Milestone Two stays at 51.8%, though Perry could nudge it close to 53%.

While the deadline for response to the Macquarie proposal is Friday the 27th, cities may still be able to work on a deal with Macquarie to get fiber infrastructure in their cities. It’s very likely, however, that the cost will be higher and they will be at the end of the line for construction. Macquarie has enough cities interested in Milestone Two to move forward with the proposal which should take about two months to complete. At that time, the cities who opted in will have the chance to review and vote on it. Upon acceptance, Macquarie is going to stick to an aggressive 30-month build plan.

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Centerville followed Murray in rejecting Milestone Two tonight, this one on a 4-1 vote. Only Perry and Orem are left to vote, but so far over half of the addresses covered by UTOPIA are opting to move forward with getting more information from Macquarie on the true cost to build, operate, and maintain the network for 30 years. Despite what you may hear, this is enough to have the Macquarie deal move forward if the Milestone Two cities accept the finalized proposal.

Most disappointing is that Centerville has 93% coverage in their city, so the vote appears to be a “we got ours” kind of statement. Tremonton and Brigham City both voted yes despite similar levels of coverage, recognizing that this is the best offer on the table and a better one is unlikely to come along.

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Murray joins Payson and Lindon in declining to move forward with the proposal from Macquarie. The council voted unanimously to pass despite not really having any other workable options on the table. Of course, they’re now in a heck of a pickle: Murray has attracted numerous businesses to the city (including a new location of the Moran Eye Center) with UTOPIA, but they’re running the risk of the network going dark if they won’t cover any operational shortfalls.

Centerville is also taking a vote tonight in a special council meeting. I’ll post when I have results from there.

The Macquarie deal is really good. I have doubts that UTOPIA cities are going to get a better offer at all, and the odds that any other offer would even have a chance of paying any of the existing bond debt are very slim. That said, there are things that all city councils should work on to make sure this is the best deal possible. Here’s what I think they need to do.

Specify speed increases on the basic tier

Including a basic tier of service seems to be a must-have now that Google Fiber has done it. I think the included tier is a pretty good deal overall, but the contract must specify a rate at which those speeds will gradually increase. The FCC already defines broadband as 4Mbps/1Mbps service. It’s rumored that they’re going to bump that to 10Mbps/3Mbps Real Soon Now(TM). I don’t think the basic tier should necessarily match what the FCC calls broadband, but it certainly can’t sit at 3Mbps/3Mbps forever. Make sure the speed increases are built into the contract, potentially as a function of the FCC definition (i.e. 75% of FCC broadband downstream speeds for upstream and downstream).

Specify increases in the transfer cap on the basic tier

A lot of people got riled up over the 20GB cap on the basic tier, but for someone who’s doing really basic usage, that’s actually pretty good. That’s 100 hours of YouTube a month or 30 hours of SD Netflix. Most people on the basic tier probably won’t be using very much anyway. That said, the cap needs to rise with time just like the speeds. 20GB is good today. What if it’s not good enough tomorrow? Make sure the contract specified that it will increase.

Require providers to fully disclose the terms of transfer caps

While we’re speaking of transfer caps on the basic tier, I think we also need to get ISPs to be VERY clear and up-front about how they handle the cap. The spectre has been raised that a hard cap could mean that someone loses their VoIP E911 service when the cap runs out. It could mean big overages. All of these terms need to be up-front. Providers should disclose if they have no caps, a soft cap (with the terms of the penalties for repeated overages), or a hard cap (with transparent pricing on purchasing additional transfer). Anything less would not be acceptable.

Require all revenues to pay down the bond debt and utility fee

City councils should already be prioritizing revenues from the system to go towards first paying the bond debts and then reducing the utility fee. Should. Citizens need to make sure that they codify that this is how they’re going to actually do it. This removes the threat that revenues from the system will flow into the general fund and the full utility fee will be assessed to residents. That would be completely unacceptable.

Try to assess the utility fee on users only

Cities are free to figure out how to collect the utility fee from residents and businesses. Macquarie has suggested “everyone pays” as the model. That kind of stinks since the entire point of the UIA was to shift costs from taxpayers to subscribers, but it’s a hard reality of how city finances work, because of the financial struggle is that companies like forbrukslån try to give people a better option. If cities can get the net utility fee low enough, they should seriously consider assessing it to network subscribers only. In the unlikely event that the income covers both the utility fee AND the bond payments, those who paid should be first in line for rate reductions to be made whole. Once the bonds are paid off, those who paid should also be first in line for reaping the benefits.

Conclusions

City councils are the ones ultimately in the drivers seat on these items. The first three need to be hammered out in the Milestone Two proposal. It’s entirely possible that some of them have already brought up one or more of these points. The final two, however, are entirely up to them. And it’s entirely up to you to let them know that’s what you want too.

In what can only be described as an outrageous disservice to the citizens of Orem, Mayor Richard Brunst outright lied about XMission’s intentions to participate in the basic 3Mbps level of service. When asked about it, XMission founder Pete Ashdown had this to say:

I’ve personally also heard or seen statements from SumoFiber, Veracity Networks, and WebWave that they have no problems providing the basic tier, a contractual requirement to remain a service provider on the network.

The mayor also accused XMission of redlining poor neighborhoods which also elicited an angry response:

It’s no secret that Mayor Brunst is a likely no vote against the Macquarie deal, but outright lying about a well-respected local company to try and convince others to do the same is a new low. The Mayor owes everyone at XMission a huge apology for simply making crap up.

Brigham City became the fifth UTOPIA city to move forward with the proposal from Macquarie and seek full details under Milestone Two. The council passed it on a 3-2 vote. Cities who have not yet taken a vote include Centerville, Orem, Murray, and Perry. This means that over 51.8% of homes in UTOPIA cities are now on board with getting full details of the proposal from Macquarie.

Word on the street is that Perry might actually move forward with the deal to not be left behind by their northern neighbors. Given that the city currently has no fiber, this may be the only way for it to make good on its existing bond commitments. They’ll be holding their next city council meeting on June 26th at 7PM.